Tuesday, June 28, 2011

New Form 1099-K

With the passage of multiple pieces of legislation that affects 1099 reporting I think it is important for business owners to know about a few changes. The first and most direct change that business owners will notice is that they have received a new type of 1099 in 2012 (for the 2011 calendar year). This form is a 1099-K. Not all businesses will receive this form, but all businesses whom receive payments from credit card companies, or paypal should expect this form.

The form 1099-K will show how much a business has received from credit card and/or pay pal sales during the calendar year. This is a new form required by the IRS. Business such as merchants, retailers, restuarants and any business that uses paypal to collect payment should watch for this form.

Business owners would be wise to review these statements and verify that they correspond to receipts from credit card sales. Finding discrepancies early is often the only way to receive an amended 1099 in a reasonable amount of time. For this reason, I would strongly suggest that business owners review these statements as soon as they receive them, and contact the reporting agent as soon as possible with any discrepancies. These discrepancies do not happen very often, but the effects can be devastating for small businesses.

This form will be another tool used to audit for unreported income, one of the worst types of audits for business owners to go through. Your business does not want an audit caused by a clerical error by a credit card company, be on the lookout for errors.

Friday, June 24, 2011

Business Mileage rates increase

Starting July 1, 2011 the new maximum allowable reimbursement rate for business travel has been increased from 51 cents per mile to 55.5 cents per mile. All businesses should take note and update their records to reflect this new mileage rate allowance.

Also note that the medical and moving mileage rate also increased from 19 cents per mile to 23.5 cents per mile. This change is also effective July 1, 2011.

Also see my previous post where I alluded to this possibility...Business Standard Mileage update for 2011 posted 5/25/2011.

Thursday, June 16, 2011

Hiring Employees without proper documentation is more dangerous than ever!

One of the things accountants and CPA's don't spend a lot of time talking about is payroll. As far as accounting services go, most CPA's find payroll services to be more of a necessary offering than a road to riches.

However, small business owners should take notice. The federal government is cracking down on employers that hire employees who do not have proper documentation. In recent weeks, many businesses have been served notices that their employment files have been chosen for review.

Usually in these instances, the federal government is looking for documentation relating to proper due diligence of business owners. Most business owners may not even be aware that they are required to make sure that the people they hire are eligible to be employed in the United States.

If you have a large payroll provider they may be supplying your company with these reporting requirements, but if they don't your company may not be in compliance. For that reason, it would be a good time for all employers to make sure they have good employee files and have met all employment record requirements for both the Federal and State governments (also local government(s) in some instances).

To add further credence to my point, here is a link to an article on The Wall Street Journal's website:

Wednesday, June 8, 2011

Mileage deductions:Stay on track to keep the IRS off your back, Part 2

1. When you own a business, you should ask yourself, “Do I owe anyone money, and why?”

If you do owe someone money, it might actually be “yourself” for out of pocket expenses relating to the business activity.

2. Unless an employee turned in a mileage log with totals, would you pay them for the mileage? The answer is most certainly no.

So why would small business owners think they are owed money from their business for mileage driven if they did not turn in the mileage logs to the business?

These basic concepts are the crux of the mileage reimbursement argument. From the IRS’s perspective: Why should I give a business a deduction for something unless there is a basis for the expense?

Small business owners should also recognize that keeping a mileage log may actually be less intrusive than trying to keep track of actual expenses relating to business travel, especially if they do not have a separate vehicle used only for business activity during the year.

That is why as a business owner, keeping a mileage log is one of the most important things that your tax professional should be talking to you about. If they are not, then maybe it is time to talk to someone else.

Friday, June 3, 2011

Michigan Business Tax (MBT) Repeal Continued

Even though the Corporate Income Tax seems to be a much better deal, based upon previous discussions, the State of Michigan has decided to allow businesses that are otherwise required to file the Corporate Income Tax, to instead continue to file the Michigan Business Tax for tax years after December 31, 2011.

One of the key reasons why corporations may find it beneficial to file their return as the MBT instead of the new CIT would likely relate to the tax credits which are eliminated under the new CIT. Nearly all tax credits are eliminated under the CIT. For this reason, as of right now, if businesses would qualify for any "certified credits" they would be allowed to file an MBT return.

It is very important to note that right now, the Employment Credit is included in the definition of certified credits, this credit allows businesses to take a credit for wages and certain employment benefits provided to employees.It is interesting that almost all businesses that would otherwise qualify to file the CIT, could file an MBT tax return. For a list of credits available as qualified credits, click here.

It is also interesting because while the transition to the new CIT tax will likely cost a great deal in administration costs, because of the decision to keep the MBT tax available, legacy costs associated with auditing two types of returns could be very substantial. High oversight and administration costs should be watched closely, as Michigan can ill afford to go without these tax revenues.

Wednesday, June 1, 2011

Mileage deductions:Stay on track to keep the IRS off your back, Part 1

Mileage deductions: One of the true gifts, and neglected aspects of your business or personal return.

When I talk to business clients, especially a new client interview, one of the things I always go out of my way to talk about is mileage. There are two reasons why I do this.

First, the standard mileage reimbursement rate is usually favorable to taking actual expenses during a tax year. I say usually, because I know of at least two clear instances where taking actual expenses are favorable. At this point let’s just assume that you (as the business owner) would be best served by taking the standard mileage rate.

Second, I understand that usually it is a pain in the butt to keep track of mileage. For this reason, I fear that clients would think to themselves why should I be keeping track of whom I see and why.

They might think, the IRS is giving me the standard mileage rate, all I need to do is estimate the number of miles I have driven and that will be the end of it. These people couldn’t be more wrong.

My next post will cover why mileage logs are instrumental in taking a business expense for mileage on your business or personal return (Sch C).